CFPB Enters into Consent Order with National Mortgage Lender

On March 15, 2017, the CFPB entered into a consent order requiring a nationwide mortgage lender to pay a $1.75 million penalty for alleged substantial reporting errors in violation of the Home Mortgage Disclosure Act (HMDA). The lender neither admits nor denies any of the CFPB’s findings in the consent order.

As a “covered institution,” the lender is required to submit data on its “covered loans,” which consist of applications for, originations of, and purchases of home purchase loans, home improvement loans, and refinancings as part of the annual report required by HMDA and its implementing regulation, Regulation C. According to the CFPB, in the recent years, the lender had experienced a rapid and substantial increase in its number of covered loans, originating more than 32,000 (worth approximately $7 billion) in 2012, 98,000 ($20 billion) in 2013, and 61,000 ($11 billion) in 2014.

In April 2015, the CFPB undertook a HMDA Data Integrity Review of the lender’s 2012, 2013, and 2014 HMDA Loan/Application Register for compliance with HMDA and Regulation C, and subsequently conducted an investigation of the lender’s HMDA compliance. Following these inquiries, the CFPB alleged that the lender had error rates in its HMDA Loan/Application Register that were above the CFPB’s applicable threshold of 10%. In particular, the CFPB alleged that in the loan samples that it reviewed, the error rate was 13% for 2012, 33% for 2013, and 21% for 2014. Importantly, the CFPB also noted that a state mortgage banking regulator previously and separately reached a settlement agreement with the lender for HMDA data integrity issues. In this regard, the CFPB has focused on the lender’s alleged history of HMDA non-compliance.

In addition to the alleged error rates, the CFPB also found that the lender’s measures to comply with Regulation C were deficient. According to the consent order, the lender failed to, among other things: maintain detailed and centralized HMDA data collection and validation procedures; clearly and consistently define employee roles and responsibilities for HMDA data collection and reporting; and perform formal compliance tests/audits. The CFPB further alleged that the lender’s compliance management system did not maintain procedures “reasonably adapted to avoid such errors” and that the errors were not “bona fide errors within the meaning of Regulation C.”

Under the consent order, the lender must submit for the CFPB’s review a compliance plan designed to ensure proper collection, recording, and reporting of HMDA data. The lender was also required to ensure that its HMDA policies, procedures, and compliance management system comply with the applicable federal consumer financial laws as well as with the terms of the consent order. Further, the lender must pay a civil penalty of $1.75 million and fix any HMDA reporting inaccuracies.